Russia sees first growth in two years as economy stabilises

Gabrielle Tétrault-Farber
 

Russia's economy expanded for the first time in two years in the fourth quarter of 2016, data from the state statistics service showed Friday, as it slowly recovers from a crippling crisis.

The country recorded 0.3 percent growth in gross domestic product year-on-year, Rosstat said, as Moscow pulls itself out of a two-year economic crisis triggered by tumbling oil prices and Western sanctions over Ukraine.

Russia's GDP last experienced growth in the fourth quarter of 2014, when it expanded by 0.2 percent.

Rosstat said that Russia's GDP had contracted 0.2 percent overall last year, after having shrank 2.8 percent in 2015.

The Russian government expects 0.6 percent growth this year, while economy minister Maxim Oreshkin has said that growth could even reach two percent.

William Jackson, Senior Emerging Markets Economist at Capital Economics, said that the return to positive growth had been "driven by stronger inventory investment and a shallower fall in consumer spending."

Jackson forecast that Russia's GDP growth would reach 1.5 percent this year and 2.3 percent in 2018, figures higher than most analysts expect.

- Slow stabilisation -

Last week Russia's central bank cut its key rate for the first time in six months amid falling inflation and said it was considering further cuts.

A number of key indicators have improved recently, especially inflation, which is now approaching the central bank's four-percent target for this year.

The bank said Friday that low inflation and a return to GDP growth had seen real wages increase.

It also noted that investments in the first quarter of 2017 have grown "one-to-three percent" year-on-year in light of the "expected recovery of demand" and a "decrease in macroeconomic uncertainty," among other factors.

Standard (Other OTC: SNDH - news) and Poor's agency this month raised its outlook for Russia's credit rating to "positive" from "stable", citing improving growth prospects and a lower risk of large capital outflows.

The agency said it expected Russia to resume positive growth this year, "averaging about 1.7 percent in 2017-2020."

It said that the "relatively low oil prices, structural impediments and sanctions" will however continue to hinder a rebound in GDP, which it expects will increase by 1.5 percent this year.

S&P said it considered that the Russian banking sector remained fragile but that it saw "some early signs of stabilisation."

Analysts from the Analytical Credit Rating Agency (ACRA), Russia's own rating agency launched in 2015, meanwhile said this week they expected Russia's GDP to cap at "1.0-1.5 percent over the next five years."

Russia's economy has appeared to stabilise over the last few months after a recession that has diminished people's purchasing power and pushed large segments of the population into poverty.

The ruble -- battered by falling oil prices and Western sanctions in 2014 and 2015 -- has risen dramatically in recent months and last month strengthened to fewer than 60 rubles to the euro for the first time since June 2015 as oil prices recovered.

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